Finance & Banking
Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York entered an Order for Final Judgment and Consent Order for Final Judgment (“the Orders”) early this month, resolving charges of a Commodity Futures Trading Commission (the “CFTC”) Complaint against a New York Corporation, Gelfman Blueprint Inc. (“GBI”) and its Chief Executive Officer, Nicholas Gelfman. The CFTC’s complaint, filed in January of 2017, marked the first anti-fraud enforcement action involving Bitcoin filed by the Commodity Futures Trading Commission. The Orders found that from approximately January of 2014-January 2016 Defendants Gelfman and GBI, through its officers and agents and employees, operated a Bitcoin Ponzi scheme in which they fraudulently solicited more than $600,000 from at least 80 customers.
In the age of digitization, data seems less secure than ever. Public companies constantly attempt to safeguard both personal and financial data, yet their efforts fail due to new outbreaks of malicious encryption viruses and persistent email phishing attempts. Data breaches and cyber fraud carry severe financial implications for public companies who fall victim to these types of attacks. But a new Securities and Exchange Commission (SEC) report says that public companies that are easy targets of cyber scams could also be in violation of federal securities laws and accounting regulations that call for firms to safeguard their assets. Although the SEC has issued its warning to public companies about the compliance and financial risks posed by cyber fraud, many companies are still struggling to implement effective protections against newly-evolved forms of cyber-attacks.
Earlier this year, Bitcoin, and cryptocurrencies writ large, occupied many financial headlines as onlookers began to divert their attention to the “unexplained” rise, and subsequent fall in the price of one the more popular (and maiden) cryptocurrencies: Bitcoin. Naturally, because many of the onlookers didn’t realize what Bitcoin was (or is), the media took lead on the story. Earlier this month, Bitcoin began to make its appearance in headlines, once again.
On September 18, 2018, the United States Supreme Court overturned a stay blocking a District Court ruling requiring non-profits to disclose identity of all contributors who give more than $200 a year. Prior to the ruling, IRS designated 501(c)(4) social welfare organizations and 501(c)(6) organizations such as business leagues and boards of trade, who do not register as political committees with the Federal Election Commission (FEC), were required to disclose donors only when they contributed for specific political advertisements. While the ruling requires the FEC to give guidance, newly issued FEC rules limit the scope of the court’s intention. It is likely that the new ruling will allow some donors to remain undisclosed while requiring partial disclosure of donors who contribute towards certain, but not all, expenditures.
On September 11, 2018, the Securities and Exchange Commission (SEC) announced two enforcement actions relating to failures to register by market intermediaries in connection with digital asset activities. Despite earlier suggestions that the Commodity Futures Trading Commission (CFTC) might be the primary self-regulatory organization (SRO) regulating this market, the main takeaway from these cases is that market intermediaries dealing in digital assets may also have registration and customer protection liabilities, and the failure to observe them can result in serious penalties.
In a recent effort to strengthen the money-laundering defenses across the U.S. financial system, small banks and credit unions are being given the option to pool their resources. In a statement issued by the federal depository institutions regulators and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) the federal regulators detail that certain banks and credit unions can enter into collaborative agreements to pool resources for anti-money-laundering compliance purposes. The new regulation will help smaller community banks address the risk of financial crime while keeping the costs low and ultimately help prevent money-laundering.
While the legal community has spent much of the last year exhaustively dissecting the European Union’s new General Data Protection Regulation (GDPR), nearly half of businesses in the United States are still not compliant with standards governing the collection, storage, and disposal of payment (credit/debit) card data. Businesses of all sizes should work to ensure that they understand and are in compliance with these standards, or risk significant exposure in the event of a payment card data breach traced back to their organization.
On March 6th, 2018 the. District Court for the Eastern District of New York upheld the classification of cryptocurrencies, such as Bitcoin and Litecoin, as commodities. The ruling subjects the cryptocurrencies to the regulation of the U.S. Commodity Futures Trading Commission (CFTC).
Compliance failures in banking can often result in real harm to borrowers. In the case of Wells Fargo, a compliance error resulted in 400 of the bank’s customers losing their homes. Due to an issue in the bank’s software system, the institution denied loan modifications to borrowers who should have qualified. This latest failure adds to the myriad of issues Wells Fargo bungled over the past several months. For compliance professionals, the failure demonstrates the risks of automation in compliance, the importance of technical expertise, and the risks of decision-making without putting the interests of the customer first.
The IRS has decided to shutdown its Offshore Voluntary Disclosure Program (OVDP) on September 28, 2018. The program offers amnesty from criminal prosecution and a set penalty structure for those who have previously failed to disclose foreign bank accounts and other foreign assets, including those held through undisclosed foreign entities. Failure to disclose could include failure to file the annual FinCEN Form 114,most commonly referred to as the foreign bank account report or “FBAR”, as well as the failure to report income from such accounts and assets on tax returns and the failure to provide various other foreign information forms and returns.